Daily Rate Update: April 29th – May 3rd

The Labor Department reported this morning that there were 263,000 jobs created in April, well above the 180,000 – 200,000 range expected while February and March were revised modestly higher by a total of 16,000. The unemployment rate fell to 3.6%, the lowest since December 1969 while average hourly earnings rose 0.2% versus the 0.3% expected.

In addition, the year-over-year wage growth number was 3.2%, matching the March number. This number came in lower than expectations, so with it comes less inflation expectations. The Labor Force Participation Rate edged lower to 62.8%. Total unemployed or the U6 number remained at 7.3%. Overall, a solid report with a Goldilocks scenario of strong job growth with subdued inflationary pressures from wages.

The US Federal Reserve Bank left the benchmark Fed Funds Rate unchanged at 2.50% and went on to say that the labor market remains strong and that economic activity rose at a solid rate. Growth of household spending and business fixed investment slowed in the first quarter. However, just recently reported were strong retail sales and consumer spending in the past month or so along with a strong Gross Domestic Product (economic growth) in Q1 2019. The Goldilocks US economy continues.

After four straight weeks of increases, mortgage rates edged lower this week due in part to slightly weaker inflation data. Freddie Mac reports that the 30-year fixed-rate mortgage fell six basis points to 4.14% with an average 0.5 in points and fees. Last year this time the rate was 4.55%. Sam Khater, Freddie Mac’s chief economist, says, “Moving into summer, we expect rates to be about a quarter to half a percentage point lower than where they were last year, which is good news for the housing market. These lower rates combined with solid economic growth, low inflation and rebounding consumer confidence should provide a solid foundation for home sales to continue to improve over the next couple of months.”

The closely watched government Jobs Report for April will be released tomorrow morning at 8:30 a.m. ET. The report will be watched around the globe to gauge if the world’s largest economy can sustain strong job growth along with continued wage increases. Wall Street is expecting 180,000 to 190,000 new jobs created in April after the strong 196,000 print in March. It would not be a surprise to see another strong number tomorrow morning – especially on the heels of yesterday’s blockbuster ADP number.

Job growth in the private sector surged in April led by hiring in the service sector. ADP private payrolls rose by 275,000 last month, well above the 170,000 expected. The numbers showed that small businesses added 77,000 jobs, medium-size companies added 145,000 and big business 53 of the job gains. The March figures were revised higher to 151,000 from 129,000. The report comes ahead of the more closely watched government Jobs Report, which will be released Friday morning.

After three straight weeks of increases, mortgage rates declined slightly in latest week and remain near one-year lows. The Mortgage Bankers Association reports the 30-year fixed-rate mortgage fell four basis points to 4.42% with an average 0.43 point. The MBAs Market Composite Index, a measure of total mortgage loan application volume, fell 4.3% while the Refinance Index declined 5% and the Purchase Index fell 3.7%.

It’s Fed day! The Fed members will release the monetary policy statement at 2:00 p.m. ET this afternoon with Fed Chair Powell’s press conference immediately following the release at 2:30. There is a near zero-percent chance of a hike to the short-term Fed Funds Rate, currently at 2.50%, and it hopefully will be a non-event. However, there is always an uptick in risk when the Fed Statement hits and when Powell does his press conference.

Home price gains continue to cool as they drift down to more normal levels due in part to an uptick in housing inventories. The S&P Case-Shiller 20-City Home Price Index rose 3% from February 2018 to February 2019, up 0.2% monthly from January to February. The national index increased 4% annually. Home price gains topped out in late 2013 with double digit gains. A spokesperson for the index said that the pace of home prices continues to slow.

Consumer confidence remained strong in April though below the best levels ever seen last fall. The Conference Board reports that its Consumer Confidence Index improved in April to 129.2 from 124.2 in March. Consumer assessments for current conditions as well as the outlook for the labor markets was more favorable in April than in March. Lynn Franco, Senior Director of Economic Indicators at The Conference Board said, “Overall, consumers expect the economy to continue growing at a solid pace into the summer months. These strong confidence levels should continue to support consumer spending in the near-term.”

Signed real estate contracts to purchase existing single-family homes jumped in March from February as the spring home buying season kicked off. The National Association of REALTORS® reports that Pending Homes Sales jumped 3.8% month-over-month though down 1.2% from March 2018. It was the 15th straight month of annual declines. Lawrence Yun, NAR chief economist said, “We are seeing a positive sentiment from consumers about home buying, as mortgage applications have been steadily increasing and mortgage rates are extremely favorable.”

For the first time in seven years, home prices fell annually though the data showed that only nine of the 85 largest metro areas saw a year-over-year decline in their median price. Redfin reports that the median home price was $295,000 annual in March, down 0.1% from March 2018. The numbers showed that West Coast markets such as Los Angeles, Orange County and Seattle posted double-digit annual declines, while large markets on the East Coast saw robust annual gains due in part to affordability.

This is a big risk-event-filled week, and it kicked off this morning with Core PCE, the Fed’s favorite inflation gauge falling to 1.6% year-over-year, the lowest since January 2018. What has been taking place is disinflation, which is simply a decrease in the growth rate of inflation. The two-day Fed meeting kicks off on Tuesday and ends Wednesday with the release of the Fed’s monetary policy statement. There is a zero-percent chance of a hike to the short-term Fed Funds Rate.